The Credit Services Association (CSA) is urging policy-makers to take extra care before prescribing detailed forbearance schemes that could make a customer’s debt problems worse not better.
The CSA believes that constraining the flexibility that exists in the current regulatory framework, and which enables customers and their creditors to agree solutions based on an individual’s circumstances, could have unintended consequences to the customer’s detriment.
In a new policy report published this week, the CSA has urged caution from ministers and regulators when designing new top-down initiatives that may adversely impact the consumers they are designed to protect.
In particular, CSA Chief Executive Chris Leslie wants policy-makers to look closely at the unforeseen issues created by recent interventions – such as the ‘Breathing Space’ debt respite scheme – before introducing further inflexible rules.
“The best solutions to problem debt are those tailored to fit the customer’s individual needs following a proper assessment of income and expenditure and dialogue with the customer. Unfortunately, we are now seeing a risk that well-meaning but rigid regulations may unwittingly make these solutions harder to achieve.
“That’s why we are now calling on Ministers and the FCA to reiterate the benefits of the principles-based, outcome-focused framework – and recognise that poorly designed short-term initiatives can sometimes be blunt instruments that may even hinder progress towards outcomes tailored to suit each customer.”
The new report – ‘Tailored Support & The Need for Flexibility in Forbearance’ – gives examples illustrating the pitfalls of poorly designed prescriptive interventions, and sets out a series of frontline case studies demonstrating how customers have benefited from a flexible approach to forbearance from collections agencies under the current rules and guidance.
Report author Daniel Spenceley, CSA Compliance Manager, says the ‘Breathing Space’ debt respite scheme is a good example of a policy created with good intentions but flawed in its design, in ways that could lead to unintended consequences for customers: “For example, there have been reports of breathing space being obtained through an automated process where the customer has not necessarily received full advice on its suitability. With restrictions on how often breathing space can be used, this approach could impact the customer’s ability to access the scheme at a later date, when it may be far more necessary.”
“We also have rules around the content of Consumer Credit Act notices, which prevent firms from being able to soften prescribed wording or tailor content in a way that better suits customers, without facing significant sanctions. Such rigid and prescribed approaches are inferior to the principles-based flexible and bespoke approach that suit each customer’s individual needs.”
CSA Chief Executive Chris Leslie believes that the current principles-based approach needs to be defended he said “The existing framework may not hit the headlines every day, but policy-makers should take care when tempted to generate short-term responses under pressure, because a tailored approach to forbearance works best. Ministers currently considering new statutory debt plan rules and duties on the credit sector should bear in mind that anything which impedes mutually agreed tailored solutions could end up harming the customer’s interests in the longer run.”